School Systems and the Affordable Care Act: Current Issues

As of January 1, 2015, school systems statewide are required to comply with the “Employer Mandate” provisions of the Affordable Care Act (“ACA”). These provisions require all employers with 50 or more employees to offer affordable, minimum value health care coverage to all full-time employees or potentially face financial penalties.

In the past, school systems offered health insurance coverage to employees who met the definition of “full-time, permanent” under the North Carolina Public Schools Benefits and Employment Policy Manual (“state benefits manual”). “Full-time, permanent,” was defined in the state benefits manual as 30 hours or more per week for six months or more. Under the ACA, an employee is full-time and thus entitled to an offer of coverage if he or she works 30 hours or more per week. Because under the ACA there is no requirement that the employee be “permanent” in order to be eligible for an offer of coverage, school systems must now offer coverage to full-time employees even if they work less than 6 months. Previously these employees were considered temporary and not eligible for coverage.

School systems are also having to address categories of employees—such as substitute teachers, bus drivers, substitute cafeteria workers, coaches, and tutors—whose hours fluctuate. The ACA regulations allow employers to utilize the “look back measurement method” to average these employees’ hours over the course of a year-long measurement period. If the employee averages 30 hours or more per week over the course of the measurement period, he or she is eligible for an offer of coverage during a corresponding year long stability period. School systems have had to develop processes and devote substantial staff time to track the hours of these employees in order to remain in compliance.

While compliance may be onerous, the penalty for failing to comply could be enormous. If school systems fail to offer coverage to a certain percentage of employees (70% in 2015 and 95% in 2016 and all years thereafter), then they potentially face a penalty equal to roughly $2,000 multiplied by the total number of the school system’s full-time employees. For a school system with 1,000 employees, the penalty would be roughly two million dollars. A smaller penalty calculated on a per-employee basis applies when employers offer to the required percentage of employees but fail to offer coverage to a full-time employee who then receives a subsidy from the federal government to purchase insurance on a health care exchange.1

Perhaps the greatest difficulty school systems have faced as a result of the employer mandate is the impact on re-hired retirees. In 2007, the General Assembly passed legislation clarifying that if a re-hired retiree becomes eligible for an offer of health insurance coverage from the employing unit (for example, a local board of education), then the employee comes off of his or retirement system insurance and must be offered coverage by the employing unit. Until the employer mandate came into effect, this had little to no impact on school systems because in order to be eligible for an offer of coverage under the state benefits manual a re-hired retiree would have had to work full-time for six months or more, which would have required the retiree to come out of retirement altogether. Under the employer mandate regulations, however, a re-hired retiree must be offered coverage whenever he or she is hired into a full-time position, even if the position is for less than six months.2

School systems often rely on re-hired retirees to fill interim (or temporary) full-time positions that are created, for example, when a principal or a teacher leaves the school system with less than 6 months remaining in the school year. Re-hired retirees are sometimes the only available qualified candidates to fill these positions. Last summer the General Assembly instructed the State Health Plan to develop a High Deductible Health Plan (“HDHP” or “Bronze Plan”) for all employees who are “newly eligible” for an offer of health insurance coverage as a result of the employer mandate regulations. The legislation authorizing the Bronze Plan was included in the 2014 Budget Act. See Session Law 2014-100, Section 35.16. The State created the Bronze Plan in response to employer concerns over the costs associated with providing coverage to newly eligible employees. The Budget Act also included a provision clarifying that if a retiree is eligible for the Bronze Plan, then he or she must be offered that plan and is no longer eligible for retirement system coverage. Accordingly, if a retiree is hired by a school system to fill a full-time interim principal position from, for example, March 1 through the end of the school year, then the retiree must be offered the bronze plan and will lose his or her retirement system coverage.

The bronze plan was designed to meet minimum requirements under the ACA. The plan has an individual deductible of $5,000 and a monthly employee-only premium of $92.38. The total monthly premium for the employee-plus-family is $562.94 and the deductible is $10,000. Given these high deductibles and premiums, a retiree may decline an interim, full-time position with a school system in order to retain his or her retirement system insurance.

Fortunately, the General Assembly may remedy this issue during the current legislative session. On January 28, 2015, Senator Jerry Tillman and Senator Chad Barefoot introduced legislation that would allow re-hired retirees to be covered under regular State Health Plan options (and not the Bronze Plan) while employed in temporary, full-time positions.3 The Senate passed the bill on March 25, 2015. The fiscal note for the bill observes that thus far only 17 retirees have been enrolled in the Bronze Plan, and thus “many retirees appear to have quit or reduced their hours to avoid being full-time employees under the current law.”4 The legislation would take effect July 1, 2015.

There is also a case currently before the United States Supreme Court that could practically eliminate the employer mandate in North Carolina. The plaintiffs in King v. Burwell5 are challenging the legality of federal subsidies in states such as North Carolina that have not established a state exchange and instead are relying on the federal exchange. In order for an employer to be liable for a penalty under the employer mandate, at least one of its employees must have received a federal subsidy to purchase insurance. If as a result of the Court’s opinion federal subsidies are no longer available in North Carolina, then no North Carolina employer could be liable for a penalty under the employer mandate. The case was argued on March 4, 2015, and the Court is expected to issue its opinion in late June.

Colin Shive is an attorney with Tharrington Smith, LLP in Raleigh, NC.

Footnotes:

1As discussed below, North Carolina has not established its own exchange, and therefore is relying on the federal exchange accessible at healthcare.gov.2This is true unless the employee is hired for less than one month.3The bill is available at http://www.ncleg.net/Sessions/2015/Bills/Senate/PDF/S6v2.pdf.4The fiscal note is available at http://www.ncleg.net/Sessions/2015/FiscalNotes/Senate/PDF/SAH0006v2.pdf.5759 F.3d 358 (4th Cir. 2014), cert. granted, 135 S.Ct. 475 (2014).

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